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| Article 1 (Purpose) |
The purpose of this Act is to protect persons who have interests in the company and to contribute to the sound growth of the enterprise by ensuring appropriateness of accounting through obliging a stock company to be audited by an external auditor (hereinafter referred to as the “auditor”) who is independent of the company.
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| Article 1-2 (Definitions) |
For the purpose of this Act, the definitions of the terms shall be as follows: <Amended by Act No. 5497, Jan.8, 1998>
| 1. | The term “financial statements” means a balance sheet, a statement of profit and loss and other documents as prescribed in the Presidential Decree prepared by the stock company, respectively; |
| 2. | The term “consolidated financial statements” means a consolidated balance sheet, a consolidated income statement and other documents as prescribed in the Presidential Decree, prepared by a parent company in case there is a relationship between parent company and controlled subsidiaries as prescribed in the Presidential Decree from among more than two companies.; and |
| 3. | The term “conglomerate combined financial statements” (hereinafter referred to as "combined financial statements") means conglomerate combined balance sheets, conglomerate income statements or other documents as determined by the Presidential Decree, prepared by a conglomerate referred to in subparagraph 2 of Article 2 of the Monopoly Regulation and Fair Trade Act (hereinafter referred to as "conglomerate") through combining financial statements of its subsidiary companies. |
[This Article Added by Act No. 4680, Dec. 31, 1993]
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| Article 1-3 (Scope of Conglomerates to Prepare Combined Financial Statements.) |
| (1) | Conglomerates and their subsidiary companies (hereinafter referred to as "affiliated companies") which have to prepare combined financial statements shall be determined by the Presidential Decree. |
| (2) | The Securities Futures Commission under the Act on the Establishment etc. of Financial Supervisory Organizations (hereinafter referred to as "the Securities Futures Commission") shall select a company which shall prepare combined financial statements (hereinafter referred to as "company preparing combined financial statements"), from among a conglomerate and its subsidiary companies as prescribed by the Presidential Decree and notify the company preparing combined financial statements, pursuant to paragraph (1) until the end of May every year. <Amended by Act No. 5522, Feb. 24, 1998> |
| (3) | Deleted. <Amended by Act No. 5522, Feb. 24, 1998> |
| (4) | With respect to the business under paragraph (2), the Securities Futures Commission may request a conglomerate's subsidiary company to submit materials such as financial statements and the list of stockholders. |
[This Article Added by Act No. 5497, Jan. 8, 1998]
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| Article 2 (Companies Subject to External Audit) |
Any stock company whose total assets amount is equal to or more than the standard amount as prescribed by the Presidential Decree (hereinafter referred to as the “company”) shall be subject to the accounting audit (hereinafter referred to as the “audit”) by the auditor after preparing financial statements (including consolidated financial statements for a company which prepares consolidated financial statements and combined financial statements for a company which prepares combined financial statements): Provided, That this shall not apply to a stock company to which the Framework Act on the Management of Government-Invested Institutions is applicable and to any other company prescribed by the Presidential Decree.<Amended by Act No. 3690, Dec 31, 1983;Act No. 4168, Dec. 30, 1989;Act No. 4680, Dec. 31, 1993; Act No. 5497, Jan. 8, 1998>
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| Article 3 (Auditor) |
| (1) | An auditor conducting an audit pursuant to Article 2 shall be as follows: Provided, That an auditor conducting an audit of a consolidated financial statements, combined financial statements, or financial statements of listed corporations (meaning the companies which have their securities listed on the Korea Stock Exchange pursuant to the Securities and Exchange Act; hereinafter the same shall apply) shall be appointed among auditors falling under any of the following subparagraphs pursuant to the Presidential Decree: <Amended by Act No. 4680, Dec. 31, 1993;Act No. 5196, Dec. 30, 1996; Act No. 5497, Jan. 8, 1998> |
| 2. | Deleted. <by Act No. 5196, Dec. 30, 1996> |
| 3. | An audit team registered in accordance with the provisions of the Ordinance of the Prime Minister of the Korea Certified Public Accountants Association (hereinafter referred to as the “Korea Certified Public Accountants Association”) established under the provisions of Article 41 of the Certified Public Accountant Act (hereinafter referred to as an “audit team”). |
| (2) | The Minister of Finance and Economy may impose restrictions on the size and so on of a company that may be audited by an auditor, taking into account the type of auditor as stipulated under each subparagraphs of paragraph (1) and the number of certified public accountants who belong thereto, pursuant to the Ordinance of the Prime Minister. <Amended by Act No. 5196, Dec. 30, 1996> |
| (3) | An auditor which is an accounting corporation shall not be able to audit a company with which such an auditor has such a relationship as stipulated under each subparagraphs of Article 33 of the Certified Public Accountant Act and an auditor who is the member of an audit team shall not be able to be an auditor of a company with which one or more of the certified public accountants thereof has such a relationship as stipulated in each subparagraphs of Article 21 of the Certified Public Accountant Act. <Amended by Act No. 5196, Dec. 30, 1996> |
| (4) | An auditor who is an accounting corporation shall not have the same director perform the audit task for 6 consecutive business years of a company. <Amended by Act No. 5196, Dec. 30, 1996> |
[This Article Wholly Amended by Act No. 5196, Dec. 30, 1996]
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| Article 3-2 (Submission of Business Report) |
| (1) | An auditor who is an accounting corporation shall submit a business report to the Securities Futures Commission and the Korea Certified Public Accountants Association within three months after the closing date of every business year. <Amended by Act No. 5497, Jan. 8, 1998> |
| (2) | The trade name, business specifications, matters on finance, matters on the result of evaluation by an auditor referred to in Article 16-2 of the accounting corporation and other matters as determined by the Ordinance of the Prime Minister shall be entered in the business report referred to in paragraph (1). |
[This Article Added by Act No. 5196, Dec. 30, 1996]
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| Article 4 (Selection and Appointment of Auditor) |
| (1) | A company shall select and appoint an auditor within four months from the initial date of each business year. In this case, an auditor shall be the same in respect of financial statements, consolidated financial statements and combined financial statements. <Amended by Act No. 5196, Dec. 30, 1996; Act No. 5497, Jan. 8, 1998; Act No. 5522, Feb. 24, 1998> |
| (2) | In selecting and appointing an auditor, a company shall obtain the approval of an ordinary general meeting under Article 365 of the Commercial Act (hereinafter referred to as "ordinary general meeting") upon the request of the statutory auditor or the auditor selection committee as determined by the Presidential Decree(hereinafter referred to as "the auditor selection committee"): Provided, That a listed corporation, and affiliated company of a conglomerate to which the company preparing combined financial statements notified by the Securities Futures Commission pursuant to Article 1-3 (2) during the previous business year belongs shall obtain approval from an ordinary general meeting upon the request of the auditor selection committee. <Amended by Act No. 5196, Dec. 30,; Act No. 5497, Jan. 8, 1998; Act No. 5522, Feb. 24, 1998> |
| (4) | Where a company appoints an auditor by replacing with or selecting (including the case requested by the company) an auditor appointed by the Securities Futures Commission pursuant to Article 4-3 (1) or re-selects an auditor because it is impossible for an already appointed auditor to perform the audit due to occurrence of causes such as its dissolution as determined by the Presidential Decree during the business year, the provisions of paragraphs (1) and (2) and Article 4-2 shall not apply. <Amended by Act No. 5196, Dec. 30, 1996; Act No 5522, Feb. 24, 1998> |
| (5) | Where a company re-selects an auditor due to any cause referred to in paragraph (4), it shall appoint an auditor within 2 months from the date of occurrence of the cause. <Amended by Act No. 5196, Dec. 30, 1996> |
| (6) | Notwithstanding the provisions of paragraph(2), where a company other than a listed corporation intends to reappoint the auditor who served as an auditor during the previous year, it may not obtain the recommendation of the statutory or the auditor selection committee and approval from an ordinary general meeting. <Added by Act No. 5522, Feb. 24, 1998> |
[This Article Wholly Amended by Act No. 4168, Dec. 30, 1989]
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| Article 4-2 (Appointment etc. of Auditor of Listed Corporation) |
| (1) | A listed corporation shall appoint an auditor every 3 business years with the same auditor within 4 months from the initial date of the first business year. In this case, where an auditor is appointed through replacement or selection (including the case requested by the company) at the request of the Securities and Futures Commission referred to in Article 4-3 (1), the foregoing shall apply from the next business year following the relevant business year. <Amended by Act No. 5497, Jan. 8, 1998> |
| (2) | Notwithstanding the provisions of paragraph (1), where an auditor falls under any cause as determined by the Presidential Decree such as breach of duty, it may dismiss the auditor upon approval of the Securities Futures Commission within 3 months from the closing of each business year even during the period of the 3 consecutive business years.<Amended by Act No. 5497, Jan 8, 1998> |
[This Article Added by Act No. 5196, Dec. 30, 1996]
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| Article 4-3 (Designation etc. of Auditor by Securities Futures Commission) |
| (1) | The Securities Futures Commission may nominate an auditor of a company at the request of the relevant company or request any company falling under any of the following subparagraphs to appoint or replace with the auditor designated by the Securities Futures Commission within the scope of 3 business years. In this case, those as designated by the Securities Futures Commission shall be limited to the following accounting corporations: <Amended by Act No. 5497, Jan. 8, 1998> |
| 1. | Any company which fails to appoint an auditor within the period of time provided for in Article 4 (1) and (5) or 4-2 (1); |
| 2. | Any relevant company where the cause is deemed unfair when it replaces an auditor or where it appoints an auditor in violation of Article 4 (2) or 4-2 (1); |
| 3. | Any company which has been pointed out by the Securities Futures Commission to have made out and published financial statements, consolidated financial statements or combined financial statements in violation of the accounting standards referred to in Article 13 as a result of the inspection of the company by the Securities and Exchange Commission :this shall not apply to the companies pointed out due to negligible violation as determined by the Securities and Exchange Commission; |
| 4. | Any company whose large shareholder or the person who has special relationship therewith is the representative director of the company as the company on which a large shareholder and the person who has special relationship therewith own not less than 50/100 of the total issued and outstanding shares (except non-voting shares, hereinafter the same shall apply) among the companies whose the amount of total assets is more than such amount as may be determined by the Presidential Decree; |
| 5. | Any relevant company where an auditor appointed by the company cannot audit pursuant to Article 3 (2) and (3); |
| 6. | Any company which has been designated as an enterprise subject to an industrial rationalization plan by a council as determined by the Presidential Decree; |
| 7. | Any company which has been recognized and designated as requiring fair audit by the Securities Futures Commission under the conditions as determined by the Presidential Decree among listed corporations; |
| 8. | Any financial institution of which the head of a financial supervisory institution or an institution delegated or entrusted with the supervisory affair under the related Acts asks the Securities Futures Commission to designate an auditor; |
8-2. Where a correspondent bank as determined by the Presidential Decree requests the Securities Futures Commission to designate an auditor with the consent of a company, the company; and
| 9. | Other companies which are recognized and designated to require especially fair audit under the Presidential Decree; |
| (2) | Where the Securities Futures Commission requests a company to replace or select an auditor as provided in paragraph (1), the company shall comply with it unless there are any special reasons. In this case, the relevant company or the person who has been nominated as an auditor may ask the Securities Futures Commission to nominate again where there exist causes as determined by the Presidential Decree. <Amended by Act No. 5497, Jan. 8, 1998> |
| (3) | Notwithstanding the provisions of paragraph(1), the Securities Futures Commission may not request a company which has appointed an auditor on the recommendation of the auditor selection committee referred to in |
Article 4 (2) to replace or selects an auditor as prescribed by the Presidential Decree. <Added by Act No. 5522 Feb. 24, 1998> [This Article Added by Act No. 5196, Dec. 30, 1996]
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| Article 4-4 (Report on Appointment, etc. of Auditor) |
Where a company appoints, replaces or selects an auditor, it shall report it to the Securities Futures Commission: Provided, That where it falls under any of the following subparagraphs, it may omit the report:<Amended by Act No. 5497, Jan. 8, 1998>
| 1. | Where a company appoints an auditor nominated by the Securities Futures Commission at the request of the company; |
| 2. | Where a company replaces or selects an auditor upon the request from the Securities Futures Commission; and |
| 3. | Where a company which is not a listed corporation reappoints the auditor for the immediately preceding business year. |
[This Article Added by Act No. 5196, Dec. 30, 1996]
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| Article 5 (Standards for Audit) |
| (1) | An auditor shall conduct the audit pursuant to the standards for audit generally accepted as fair and reasonable. <Amended by Act No. 4168, Dec. 30, 1989> |
| (2) | The standards for audit as provided in paragraph (1) shall be determined by the Financial Supervisory Commission after deliberating by the Securities Futures Commission. <Amended by Act No. 5196, Dec. 30, 1996; Act No. 5497, Jan. 8, 1998> |
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| Article 6 (Authority of Auditor) |
| (1) | The auditor may, at any time, read, copy any accounting books or records of the company and a company which possesses stocks of the former company in certain ratio or more, etc. or has relation with such company as determined by the Presidential Decree (hereinafter referred to as “related companies”)and its affiliated companies, or request them to submit data concerning accounting, and may, if especially necessary for performing his duties, investigate their affairs and the financial status. : Provided, That where he investigates the affairs and financial status of related companies or their affiliated companies, he shall obtain approval from the Securities Futures Commission. <Amended by Act No. 5497, Jan. 8, 1998> |
| (2) | The auditor who audits consolidated financial statements or combined financial statements may, if necessary for performing his duties, request an auditor of the company, related companies and their affiliated companies to cooperate with him, in such way as the submission of data in relation to the audit. In such a case, the auditors of the company, related companies and their affiliated companies shall comply with such a request without delay. <Amended by Act No. 5497, Jan. 8, 1998> |
[This Article Wholly Amended by Act No. 4680, Dec. 31, 1993]
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| Article 7 (Submission of Financial Statements, etc.) |
A company shall prepare financial statements, consolidated financial statements or combined financial statements in respect of the relevant business year and submit them to the auditor within the period of time prescribed by the Presidential Decree. <Amended by Act No. 4680, Dec. 31, 1993; Act No. 5497, Jan. 8, 1998>
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| Article 8 (Submission of Audit Report, etc.) |
| (1) | An auditor shall prepare and submit an audit report to the company (including the statutory auditor), the Securities Futures Commission and the Korea Certified Public Accountants Association within such period of time as prescribed in the Presidential Decree. <Amended by Act No. 4680, Dec. 31, 1993; Act No. 5196, Dec. 30, 1996; Act No. 5497, Jan. 8, 1998> |
| (2) | A company shall submit the financial statements approved at the ordinary general meeting in accordance with the provisions of Article 449 (1) and (3) of the Commercial Act to the Securities Futures Commission as prescribed by the Presidential Decree: Provided, That in the case that the financial statements approved at an ordinary general meeting are same as the financial statements attached to the audit report submitted by an auditor to the Securities Futures Commission pursuant to the above paragraph (1), a company may not submit such financial statements. <Amended by Act No. 4680, Dec. 31, 1993; Act No. 5497, Jan. 8, 1998> |
[This Article Wholly Amended by Act No. 4168, Dec. 30, 1989]
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| Article 9 (Keeping Secrets) |
An auditor, certified public accountants therefrom, a member of the Securities Futures Commission, any person or agent aiding the above persons with regard to auditing or supervising affairs, or any person related to the Korea Certified Public Accountants Association which performs the affairs of the Securities and Exchange Commission on commission, shall not disclose secrets which have come to their knowledge in the course of performing their duties: Provided, That this shall not apply where it is in conflict with special provisions contained in other Acts. <Amended by Act No. 5196, Dec. 30, 1996; Act No. 5497, Jan. 8, 1998>
[This Article Wholly Amended by Act No. 4680, Dec. 31, 1993]
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| Article 10 (Report of Dishonest Acts, etc.) |
| (1) | If the auditor has, in performing his duties, found any dishonest act or any fact in violation of the Acts and subordinate statutes or the articles of incorporation which has been committed by the director in connection with conducting corporate business, he shall inform the statutory auditor and report it at the general shareholders’ meeting. <Amended by Act No. 5196, Dec. 30, 1996> |
| (2) | If the auditor has discovered the facts demonstrating that the company has violated the standards for accounting on accounting etc., he shall inform the statutory auditor of it. <Added by Act No. 5196, Dec. 30, 1996> |
| (3) | If the statutory auditor has found any dishonest act or any grave fact in violation of the Acts and subordinate statutes or the articles of incorporation in the performance of duties by directors, he shall inform the auditor of it. <Added by Act No. 5196, Dec. 30, 1996> |
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| Article 11 (Attendance at General Shareholders’ Meeting) |
When requested by the general shareholders’ meeting, the auditor or the certified public accountant thereof shall attend the general shareholders’ meeting to state his opinions or answer to questions from shareholders. <Amended by Act No. 4168, Dec. 30, 1989>
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| Article 12 (Recommendation to Alter Fiscal Year) |
The Securities Futures Commission may, if especially necessary, recommend a company to alter its fiscal year. <Amended by Act No. Dec. 30, 1996; Act No. 5497, Jan. 8, 1998>
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| Article 13 (Standards for Accounting) |
| (1) | The standards for accounting shall be determined by the Financial Supervisory Commission after deliberation by the Securities Futures Commission. <Amended by Act No. 5497, Jan. 8, 1998> |
| (2) | The standards for accounting under the provisions of the above paragraph (1) shall be made to secure the uniformity and the objectivity of corporate accounting and audits by an auditor. |
| (3) | A company shall prepare financial statements, consolidated financial statements or combined financial statements pursuant to the standards for accounting under paragraph (1). <Added by Act No. 4680, Dec. 31, 1993; Act No. 5497, Jan. 8, 1998> |
[This Article Wholly Amended by Act No. 4168, Dec. 30, 1989]
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| Article 14 (Keeping and Public Notification, etc. of Audit Report) |
| (1) | A company shall keep and publicly announce its financial statements as prescribed in the Presidential Decree, (including consolidated financial statements for a company which prepares consolidated financial statements and combined financial statement for an affiliated company), and the audit report of the auditor at the same time. <Amended by Act No. 4680, Dec. 31, 1993; Act No. 5497, Jan. 8, 1998> |
| (2) | When a company gives public notice of the balance sheet in accordance with the provisions of Article 449 (3) of the Commercial Act, the company shall add to it the name and audit opinion of the auditor. <Amended by Act No. 3724, Apr. 10, 1984> |
| (3) | The auditor which is accounting company shall keep and publicly notify the business report submitted pursuant to Article 3-2 (1) as provided in the Presidential Decree.<Added by Act No. 5196, Dec. 30, 1996> |
| (4) | The Securities Futures Commission and the Korea Certified Public Accountants Association shall keep the business report submitted in accordance with the provisions of Article 3-2 (1) or the audit report submitted in accordance with the provisions of Article 8 (1) in a designated place for two years, and cause the public to read it. <Added by Act No. 4680, Dec. 31, 1993 ; Act No. 5196, Dec. 30, 1996; Act No. 5497, Jan. 8, 1998> |
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| Article 15 (Supervision by Securities Futures Commission) |
| (1) | The Securities Futures Commission shall supervise the audit report, in order to ensure a fair auditing, and perform other tasks as may be required under the Presidential Decree. <Amended by Act No. 5497, Jan. 8, 1998> |
| (2) | Deleted. <by Act No. 5196, Dec. 30, 1996> |
| (3) | The matters necessary for the Securities Futures Commission to perform its tasks under this Act shall be determined by the Financial Supervisory Commission after deliberation by the Securities Futures Commission. <Amended by Act No. 5497, Jan. 8, 1998> |
| (4) | The Securities Futures Commission may delegate part of its authority or tasks under this Act to the chairman of the Securities Futures Commission or the Director of the Securities Supervisory Service established under the Act or the Establishment etc of Financial Supervisory Organizations (hereinafter referred to as "the Financial Supervisory Service") as prescribed by the Presidential Decree. <Amended by Act No. 5497, Jan. 8, 1998> |
| (5) | The Securities Futures Commission may delegate all or part of its tasks as provided in paragraph (1), Articles 5 (2), 15-2 and 16 (1) to the Korea Certified Public Accountants Association as prescribed by the Presidential Decree. In this case, the Korea Certified Public Accountants Association may collect part of auditor’s audit remuneration as supervisory affairs fee as determined by the Ordinance of the Prime Minister. <Added by Act No. 4680, Dec. 31, 1993;Act No. 5196, Dec. 30, 1996; Act No. 5497, Jan. 8, 1998> |
| (6) | Deleted. <by Act No. 5497, Jan. 8, 1998> |
[This Article Wholly Amended by Act No. 4168, Dec. 30, 1989]
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| Article 15-2 (Demand for Submission of Data) |
| (1) | The Securities Futures Commission may demand that a company, related companies and their affiliated companies or an auditor submit data, state or report opinions, or may have the Director of the Financial Supervisory Service (hereinafter referred to as "the FSS Director") inspect the accounting books and documents of the company, related companies and their affiliated companies or investigate the business and the financial status thereof, if necessary for the purposes of performing the tasks under the provisions of Article 15 (1). <Amended by Act No. 4680, Dec. 31, 1993; Act No. 5497, Jan. 8, 1998> |
| (2) | The Securities Futures Commission may request the Fair Trade Commission and the Office of the National Tax Administration to submit data determined by the Presidential Decree as necessary for the discharge of tasks referred to in Articles 1-3 and 4-3, In the case, any agency which received the request shall comply with it unless there exists a special cause. <Added by Act No. 5522, Feb. 24, 1998> |
| (3) | The person who inspects the accounting books and documents of a company or investigate its financial condition under the provisions of paragraph (1) shall be given such evidence of his authority as may be necessary to show such authority to those concerned. |
[This Article Added by Act No. 4168, Dec. 30, 1989]
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| Article 15-3 Deleted.<by Act No. 5497, Jan. 8, 1998> |
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| Article 15-4 (Assistance of Tasks) |
The Financial Supervisory Service shall give assistance to the Financial Supervisory Commission and the Securities Futures Commission as prescribed by the Presidential Decree in connection with their tasks under this Act. <Amended by Act No. 5497, Jan. 8, 1998>
[This Article Added by Act No. 4168, Dec. 30, 1989]
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| Article 16 (Measures on Auditors, etc.) |
| (1) | If an auditor or a certified public accountant from an auditor falls under any of the following subparagraphs, the Securities Futures Commission may take measures including recommendation of the Minister of Finance and Economy to cancel a charter or a registration of such an auditor or certified public accountant therefrom, or to suspend the business or duties thereof during a specific period of time, or restriction on the tasks of audit on a particular company and other necessary measures: <Amended by Act No. 4680, Dec. 31, 1993;Act No. 5196, Dec. 30, 1996; Act No. 5497, Jan. 8, 1998> |
| 1. | In case of violation of Article 3 (2) and (3), 3-2 (1), 5 (1), 8 (1), or 9, 10 (1) and (2), 11, 14 (3) or 17-2 (1). |
| 2. | In case of refusal or evasion of the demand for the submission of data in accordance with the provisions of Article 15-2 (1); |
| 4. | In case of violation of this Act or any order made under this Act. |
| (2) | The Securities Futures Commission may take the necessary measures including recommendation to dismiss a director, or restriction of issuance of securities during a specific period of time to the general meeting of stockholders of a company (including affiliated companies for combined financial statements) if such company falls under any of the following subparagraphs: <Amended by Act No. 4680, Dec. 31, 1993; Act No. 5196, Dec. 30, 1996; Act No. 5497, Jan. 8, 1998> |
| 1. | In case it does not comply with the demand of the Securities Futures Commission under Article 4-3 (1) without justifiable cause; |
| 2. | In case it violates the provisions of Article 4-4, 7, 8 (2) or 10 (3); |
| 3. | In case it fails to prepare financial statements, consolidated financial statements or combined financial statements or prepares and publicly announces financial statements, consolidated financial statements or combined financial statements in violation of the standards for accounting under Article 13; |
| 4. | In case it violates the provisions of Article 14 (1) and (2); and |
| 5. | In case it refuses, interferes with or evades any demand for the submission of data, inspection or an investigation under Articles 1-3(4) a15-25-2 (1) without justifiable cause, or submits false data. |
[This Article Wholly Amended by Act No. 4168, Dec. 30, 1989)
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| Article 16-2 (Assessment on Auditor) |
| (1) | The Securities Futures Commission may conduct an assessment of the organization, its operation and so on in respect of an auditor. <Amended by Act No. 5497, Jan. 8, 1998> |
| (2) | The matters necessary for the assessment under paragraph (1), such as objects, items and grading, time, methods of assessment and matters on the composition of assessment deliberative body, shall be determined by the Korea Certified Public Accountants Association upon approval from the Securities Futures Commission. <Amended by Act No. 5497, Jan. 8, 1998> |
| (3) | The Securities Futures Commission may entrust all or part of the affairs as provided in paragraphs (1) and (2) to the FSS Director or the Korea Certified Public Accountants Association under the conditions as determined by the Presidential Decree. <Amended by Act No. 5497, Jan. 8, 1998> |
[This Article Added by Act No. 5196, Dec. 30, 1996]
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| Article 17 (Liability for Damages) |
| (1) | If an auditor causes damage to a company due to negligence in the performance of his duties, such auditor shall be liable for such damages incurred to that company. In the case that such auditor is an audit team, certified public accountants who participated in the said audit on such company shall be jointly liable for such damages. <Amended by Act No. 4168 Dec. 30, 1989; Act No. 4680 Dec. 31, 1993; Act No. 5196 Dec. 30, 1996> |
| (2) | In case an auditor who fails to record important matters or makes a false statement in an audit report causes any damages to a third party who relies upon it, such an auditor shall be liable for the damages of such third party: Provided, That in case a subsidiary company, related companies or their affiliated companies are liable for the failure to record important matters or making a false statement in an audit report on the consolidated financial statements or combined financial statements, the relevant auditor of such subsidiary company, related companies or their affiliated companies shall be liable for the damages of a third party who relies upon and uses such a report. <Amended by Act No. 4680, Dec. 31, 1993; Act No. 5497, Jan. 8, 1998> |
| (3) | The latter part of paragraph (1) shall apply mutatis mutandis to the case of paragraph (2). <Added by Act No. 4680, Dec. 31, 1993> |
| (4) | In case the auditor is liable for damages to a company or third person, and the director or the statutory auditor of the company also bears liability, such auditor, director and statutory auditor of the company auditor shall be jointly liable for the damages. <Amended by Act No. 5522, Feb. 24, 1998> |
| (5) | If an auditor or a certified public accountant participating in an audit in paragraphs (1) through (3) proves that he was not negligent in performing his duties, he shall not be liable for the damages. <Added by Act No. 4168, Dec. 30, 1989;Act No. 4680, Dec. 31, 1993; Act No. 5522, Feb. 24, 1998> |
| (6) | An auditor shall take necessary measures including purchase of an insurance policy, establishment of joint fund for indemnification as stipulated under the Article 17-2, etc. pursuant to the Ordinance of the Prime Minister in order to meet any liability for the damages which may be imposed pursuant to above paragraphs (1) through (4). <Added by Act No. 4168, Dec. 30, 1989;Act No. 4680, Dec. 31, 1993;Act No. 5196, Dec. 30, 1996> |
| (7) | The liability for the damages under the provisions of paragraphs (1) through (4) shall lapse if it is not claimed for within one year from the date when the claimant has become aware of such facts or within three years from the date when the audit report has been submitted: Provided, That such period may be extended by the contract for the appointment of an auditor under the provisions of Article 4. <Amended by Act No. 4680, Dec. 31, 1993> |
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| Article 17-2 (Accumulation of Joint Fund for Damages, etc.) |
| (1) | An accounting corporation shall accumulate a joint fund for damages (hereinafter referred to as the “joint fund”) at the Korea Certified Public Accountants Association to compensate for the damages to a company or to a third person referred to in Article 17 (1) and (2). |
| (2) | The joint fund to be accumulated pursuant to paragraph (1) shall be composed of a basic reserve and annual reserve of each business year, and the accumulation limit and the amount shall be determined by the Presidential Decree. |
| (3) | No accounting corporation who has accumulated the joint fund pursuant to paragraph (1) shall transfer the joint fund accumulated at the Korea Certified Public Accountants Association or furnish it as security unless otherwise determined by the Presidential Decree, and no person shall levy an attachment (including the provisional attachment) on it. |
[This Article Added by Act No. 5196, Dec. 30, 1996]
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| Article 17-3 (Payment and Limit of Joint Fund, etc.) |
| (1) | The Korea Certified Public Accountants Association shall pay the joint fund upon the application of a company or a third party when an accounting corporation is rendered a final and conclusive judgement for the company or the third party referred to in Article 17 (1) and (2). |
| (2) | The limit by each applicant and by each accounting corporation of payment by the Korea Certified Public Accountants Association pursuant to paragraph (1) shall be determined by the Presidential Decree. |
| (3) | In the case that the Korea Certified Public Accountants Association pays as provided in paragraph (1), the accounting corporation shall bear the joint responsibility within the limit as specified in paragraph (2). |
| (4) | In the case that the Korea Certified Public Accountants Association pays as provided in paragraph (1), it shall be entitled to be indemnified by the accounting corporation who has caused such payment. |
| (5) | In the case that the real balance of the joint fund calculated under the conditions as determined by the Korea Certified Public Accountants Association as the result of the payment referred to in paragraph (1) by the Korea Certified Public Accountants Association falls short of the basic reserve referred to in Article 17-2 (2), the Korea Certified Public Accountants Association may cause accounting corporation to accumulate the amount of deficiency under the conditions as determined by the Presidential Decree. |
[This Article Added by Act No. 5196, Dec. 30, 1996]
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| Article 17-4 (Management of Joint Fund, etc.) |
| (1) | The Korea Certified Public Accountants Association shall manage the joint fund separately by each accounting corporation, and calculate it independently of other property of the Korea Certified Public Accountants Association. |
| (2) | The operation methods, time and procedures of payment, return of the joint fund and other detailed matters necessary for the management of the joint fund shall be determined by the Ordinance of the Prime Minister. |
| (3) | When deemed necessary, the Minister of Finance and Economy may conduct an inspection of the management etc. of the joint fund of the Korea Certified Public Accountants Association. |
[This Article Added by Act No. Dec. 30, 1996]
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| Article 18 (Special Treatment as to Listed Corporation, etc.) |
If the provisions of the Securities and Exchange Act concerning the audit by the certified public accountant are different from those of this Act, the former shall be applied: Provided, That the foregoing shall not be applied to the accounting standards for the company.
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| Article 19 (Penal Provisions) |
| (1) | Where an auditor or its certified public accountant has received an unjust solicitation concerning his duties, and given, demanded or promised money or other benefits in response to such auditor shall be punished by imprisonment for not more than three years, or by a fine not exceeding thirty million won : Provided, That where an amount equivalent to five times of economic benefits obtained in relation to his duties exceeds thirty million won for being punished by a fine, he shall be punished by a fine less than an amount equivalent to five times of economic benefits obtained in relation to his duties: <Amended by Act No. 4168, Dec. 30, 1989; Act No. 5522, Feb. 24, 1998> |
| (2) | The provisions of paragraph (1) shall be applied to any person who has given, promised to give, expressed his intention to give, money or any other benefits as referred to in paragraph (1). |
| (3) | The money or benefits as referred to in paragraphs (1) and (2) shall be confiscated. If the whole or a part of it can not be confiscated, the value thereof shall be collected. |
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| Article 20 (Penal Provisions) |
| (1) | Where those provided for in Article 635 (1) of the Commercial Act, persons in charge of accounting of other companies, an auditor or a certified public accountant thereof fall under any of the following subparagraphs, they shall be punished by imprisonment for not more than three years or by a fine not exceeding thirty million won: <Amended by Act No. 4168, Dec. 30, 1989;Act No. 4680, Dec. 31, 1993;Act No. 5196, Dec. 30, 1996; Act No. 5522, Feb. 24, 1998> |
| 1. | In case of having failed to appoint an auditor within the period of time as provided in Article 4 (1) and (5), or 4-2 (1) without justifiable cause; |
| 2. | In case of having failed to record important matters or made a false statement in an audit report; |
| 3. | In case of having disclosed secrets in contravention of the provisions of Article 9; |
| 4. | In case of having failed to report unjust acts, etc. of directors under the provisions of Article 10; |
| 5. | In case of having made a false statement or concealed the facts at the general meeting of stockholders held in accordance with the provision of Article 11; |
| 6. | Deleted; <by Act No. 4168, Dec. 30, 1989> |
| 7. | In case of having failed to prepare financial statements, consolidated financial statements or combined financial statements; and |
| 8. | In case of having prepared and publicly announced false financial statements, consolidated financial statements or combined financial statements in violation of the standards for accounting referred to in Article13. |
| (2) | In case the persons provided in Article 635 (1) of the Commercial Act or other persons who are in charge of the accounting affairs of a company fall under any of the following subparagraphs, they shall be punished by imprisonment for not more than two years or by a fine not exceeding twenty million won: <Added by Act No. 4680, Dec. 31, 1993; Act No. 5497, Jan. 8, 1998; Act No. 5522, Feb. 24, 1998> |
| 1. | and 2. Deleted; <by Act No. 5522, Feb. 24, 1998> |
| 3. | In case of having presented false data to an auditor or the certified public accountants thereof or interfered with the normal external audit activities of an auditor by fraud or other unjust means; |
| 4. | In case of having refused, interfered with or evaded the request for inspection, copying , reporting or investigation by an auditor referred to in Article 6 or having failed to submit related data without any justifiable cause; |
| 5. | In cape of having failed to submit financial statements, consolidated financial statements or combined financial statements in violation of Articles 7 and 8(2); and |
| 6. | In case of having refused, interfered with or evaded the request for submission of data, inspection or investigation referred to in Articles 1-3(4) a15-2(1)(1) or submitted false data without any justifiable cause. |
| (3) | In case the persons provided for in Article 635 (1) of the Commercial Act, other persons in charge of accounting, or auditors and the certified public accountants thereof fall under any of the following subparagraphs, they shall be punished by imprisonment not more than one year or a fine not exceeding ten million won: <Amended by Act No. 4680, Dec. 31, 1993; Act No. 5196, Dec. 30, 1996; Act No. 5497, Jan. 8, 1998; Act No. 5522, Feb. 24, 1998> |
| 1. | In case of having failed to comply with the request of the Securities Futures Commission under Article 4-3 (1) without justifiable cause; |
| 2. | and 3. Deleted; <by Act No. 5522, Feb. 24, 1998> |
| 4. | In case of having failed to submit an audit report under Article 8 (1); |
| 5. | In case of having failed to comply with the request to attend the general meeting of stockholders under Article 11; |
| 6. | Deleted; and <by Act No. 5522, Feb. 24, 1998> |
| 7. | In case of having failed to enter the name of an auditor and audit opinion together in violation of Article 14 (2). |
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| Article 20-2 (Fine for Negligence) |
| (1) | In case a company falls under any of the following subparagraphs, it shall be punished by a fine for negligence not exceeding five million won: <Amended by Act No. 5196, Dec. 30, 1996; Act No. 5522, Feb. 24, 1998> |
| 1. | In case of having failed to report under Article 4-4; and |
| 2. | In case of having failed to keep and publicly announce the audit report in violation of Article 14 (1). |
| (2) | The Securities Futures Commission shall impose and collect the fine for negligence under paragraph (1) as prescribed by the Presidential Decree. <Amended by Act No. 5196, Dec. 30, 1996; Act No. 5497, Jan. 8, 1998> |
| (3) | A person who is dissatisfied with the disposition of the fine for negligence under paragraph (2) may file an object to the person who has taken the disposition within 30 days from the receipt of the notice of the disposition. |
| (4) | In case a person who is subject to the fine for negligence under paragraph (2) has filed an objection paragraph (3), the person who has taken the disposition shall notify the competent court without delay and the competent court which has received notice shall decide whether the disposition of a fine for negligence is justifiable in accordance with the Non-Contentious Case Litigation Procedure Act. |
| (5) | In case a person who is subject to a fine for negligence does not file an objection within the specified period of time under paragraph (3) and does not pay the fine for negligence, the fine for negligence shall be collected by referring to practices of the collection of national tax or local tax in arrears. |
[This Article Added by Act No. 4680, Dec. 31, 1993]
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| Article 21 (Joint Penal Provisions) |
When a representative of a company, or an agent, employee or other employed persons for a company or individual has committed acts in violation of Article 19 or 20 in the course of business of the company or individual, the fine under the corresponding Articles of this Act shall be imposed on the company or individual in addition to the punishment of the person who has committed such acts.
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| Article 22 (Enforcement Decree) |
The matters necessary for the enforcement of this Act shall be prescribed by the Presidential Decree.
ADDENDA
| (1) | (Enforcement Date) This Act shall enter into force on January 1, 1981. |
| (2) | (Applications in Particular Cases) The provisions of Articles 4 and 5 (1) shall begin to apply from the first initial business year after January 1, 1982: Provided, That in case of a company which has altered its business year on and before December 31, 1982 in accordance with the provision of Article 12, if the period of the business year subject to audit for the first time falls short of one year, the provisions of Articles 4 and 5 (1) shall begin to apply from the business year subsequent to such business year except for the company subject to theArticle 182r the provision of Article 182 of the Securities and Exchange Act. |
ADDENDA<Act No. 3690, Dec. 31, 1983>
Article 1 (Enforcement Date)
This Act shall enter into force on March 1, 1984.
Articles 2 through 7 Omitted.
ADDENDA<Act No. 3724, Apr. 10, 1984>
Article 1 (Enforcement Date)
This Act shall enter into force on September 1, 1984.
Articles 2 through 25 Omitted.
ADDENDA<Act No. 4168, Dec. 30, 1989>
| (1) | (Enforcement Date) This Act shall enter into force on January 1, 1990. |
| (2) | (Transitional Measures in relation to Restriction on Duties of Auditor) With regard to the cases of restriction on the duties of an auditor, the previous provision shall continue to apply until May 31, 1990 in spite of the amended provision of Article 3 (2). |
| (3) | (Transitional Measures in relation to Appointment of Auditor) A company which has begun before the enforcement of this Act the business year to which the enforcement date of this Act belongs may select and appoint an auditor for such a business year in accordance with the previous provisions in spite of the amended provision of Article 4. |
| (4) | (Transitional Measures in relation to Application of Standards for Accounting) The previous standards for accounting shall be applied until the Securities and Exchange Commission determines the standards for accounting with the approval of the Minister of Finance and Economy in accordance with the amended provision of Article 5. |
| (5) | (Term of Office of First Commissioners of Supervisory Commission) The term of office of the first commissioners of the Supervisory Commission shall be two years for three persons, three years for four persons in spite of the amended provision of Article 15-3 (5). |
ADDENDA<Act No. 4680, Dec. 31, 1993>
| (1) | (Enforcement Date) This Act shall enter into force on January 1, 1994. |
| (2) | (Transitional Measures in relation to Consolidated Financial Statements) The amendments to Articles 2, 14 (1) and 15 (5) shall be applied on and after the first business year after the enforcement date of this Act. |
| (3) | (Transitional Measures in relation to External Audit Supervisory Commission) The commissioners of the External Audit Supervisory Commission commissioned under the provision of former Article 15-3 before the enforcement date of this Act shall be regarded as commissioned under this Act. In such case, the term of office begins from the date of commission under the previous provisions. |
| (4) | (Transitional Measures in relation to Application of Penalties) In case of the application of penalties to acts committed before the enforcement of this Act, the previous provisions shall apply thereto. |
ADDENDA<Act No. 5196, Dec. 30, 1996>
Article 1 (Enforcement Date)
This Act shall enter into force on January 1, 1997.
Article 2 (General Applications in Particular Cases)
The amendments to the Articles 3, 3-2, 4-3, 10 and 14 (3) and (4) shall be applied from the business year which initially starts on and after January 1, 1997. Article 3 (Examples of Application on Appointment of Auditor)
The amendments to Article 4 (2) and (3) shall apply from the ordinary general meeting which shall be convened for the first time after April 1, 1997 for the approval of the appointment of an auditor. Article 4 (Examples of Application on Auditor of Listed Corporations)
The amendments to Article 4-2 shall apply according to the classification of following subparagraph: | 1. | In case of a company whose period for the settlement of accounts is not December, and a corporation whose period for the settlement of accounts is December, but whose auditors of the immediately preceding 2 business years are different from each other, the amendments shall begin to apply upon the appointment of the auditor of the business year which starts for the first time after January 1, 1997; |
| 2. | In case of a company whose period for the settlement of accounts is December, and whose auditor for the period of the 5 immediately preceding business years before January 1, 1991 is same, the amendments shall begin to apply upon the appointment of the auditor of the business year which starts for the first time after January 1, 1999; and |
| 3. | In case of a company which does not fall under subparagraphs 1 and 2, the amendments shall begin to apply upon the appointment of the auditor of the business year which starts for the first time after January 1998. |
Article 5 (Examples of Application on Submission etc. of Audit Report)
The amendments to Article 8 (1) shall begin to apply as to the audit report which shall be submitted after April 1, 1997. Article 6 (Examples of Application on Collection of Management Control Fees)
The amendments to the latter part of Article 15 (5) shall apply on and after the fiscal year to which the enforcement date of this Act belongs in case of an accounting corporation (including joint accounting offices which is deemed to be auditor pursuant to Article 8 of Addendum) and apply on and after January 1, 1996 in case of an audit team, in relation to the audit remuneration under the audit contract executed, respectively, after each of the above specified date. Article 7 (Transitional Measures on Appointment of Auditor)
A company, which has concluded an audit contract and has not received an audit report, and whose business year started after February 1, 1996 and a company whose business year starts on January 1, 1997 may, notwithstanding the previsions of Article 4 (1) and (2) and the amendments to the provisions of Article 4-2 (1), appoint or replace an auditor through a resolution of the board of directors upon the proposal of the statutory auditor until May 31, 1997: Provided, That the foregoing shall not apply to a company which appoints an auditor upon the approval from the ordinary general meeting of shareholders pursuant to the purview of the previous Article 4 (2), or which replaces or selects an auditor nominated by the Securities and Exchange Commission pursuant to paragraph (3) of the same Article. Article 8 (Transitional Measures on Auditor)
Joint accounting offices, under the previous provisions at the time of enforcement of this Act shall, notwithstanding the amendments to Article 3 (1), be deemed to be auditors under this Act until March 31, 1997. In this case, the previous provisions of Article 17 shall apply to the liability of the joint accounting offices for the damages.
ADDENDA<Act No. 5497, Jan. 8, 1998>
Article 1 (Enforcement Date)
This Act shall enter into force on April, 1, 1998.
Article 2 (Examples of Application on Combined Financial Statements)
The provisions on preparation of combined financial statements and discipline to the violation, auditing and keeping and publicly announcing audit reports of affiliated companies under the amendments to Articles 1-3, 2, 14 (1) and 16 (3) 3 (limited to matters on combined financial statements) shall apply to the business year starting after January 1, 1999. <Amended by Act No. 5522, Feb. 24, 1998> Article 3 (Examples of Application on Appointment of Auditor)
An amendment to Article 4 (2) shall apply to an ordinary general meeting first convened after the entry into force of this Act for the approval of an auditor. Article 4 (Transitional Measures on Establishment of Securities Futures Commission)
Any act done by the Securities and Exchange Commission under the previous Article 4-3 or 16 at the time of the entry into force of this Act shall be deemed to be done by the Securities Futures Commission under this Act. Article 5 (Transitional Measures on Establishment of Financial Supervisory Commission)
Any standards or regulations determined by the Securities and Exchange Commission on approval by the Minister of Finance and Economy pursuant to the previous Article 5 (2), 13 (1) or 15 (3) at the time of the entry into force of this Act shall be deemed to have been determined by the Financial Supervisory Commission after deliberation by the Securities Futures Commission under this Act. Article 6 (Transitional Measures on Assessment of Auditor)
Any assessment or approval done by the Minister of Finance and Economy pursuant to the previous Article 16-2 (1) or (2) at the time of the entry into force of this Act shall be deemed to have been done by the Securities Futures Commission under this Act.
ADDENDA<Act No. 5522, Feb. 24, 1998>
| (1) | (Enforcement Decree) This Act shall enter into force on April 1, 1998. |
| (2) | (Examples of Application on Appointment of Auditor) An amendment to Article 4 (2) shall apply to an ordinary general meeting first convened after the entry into force of this Act for the approval of an auditor. |
| (3) | (Transitional Measures on Fine for Negligence) The application of fines for negligence to acts done prior to the entry into force of this Act shall be governed by the previous provisions. |
